Thought Leaders in E-Commerce: Ethan McAfee, CEO of Amify (Part 3)

Sramana Mitra: What about other channels like eBay?

Ethan McAfee: We’ve always focused on the Amazon channel because Amazon is 12 times the size of Walmart and Jet combined. A lot of the products on eBay are oftentimes used or collectible products. It’s not as much new products.

The main issue with eBay is, it’s very difficult to scale compared to Amazon. The reason why that’s the case is that the amount of customer service and handling is much higher on eBay than it is on Amazon.

All else equal, you’d have to charge higher prices to compensate for those issues on eBay, which means charging $40 for a $30 product on Amazon.

Sramana Mitra: The bottom line is, if there’s one channel that you want to bet on for small businesses, it’s Amazon.

Ethan McAfee: You focus on the one that matters. Most brands don’t have a very good Amazon strategy. It better to have a great Amazon strategy than a mediocre Amazon strategy.

Sramana Mitra: Let’s talk about the cost structure. If you’re not buying a lot of traffic for your direct website by bidding on expensive Google ads, you’re saving a lot of money. Amazon is charging. Can you talk about the fee structure of Amazon and compare that to an independent website?

Ethan McAfee: Amazon charges two main fees. They charge a referral fee. That’s just for helping you sell the product. For most categories, that’s 15% of revenue. If you think about it a little bit more, that’s roughly 3% credit card fee and 12% referral fee.

I always say, “If you’re going to buy on someone’s website, it’s going to be 3% credit card fee.” Amazon’s basically charging you 12%. Secondly, they charge for shipping your products. Depending on size and weight, it’s $3 for a small product and maybe $10 for a heavier product.

Depending on the product, you’re probably talking 25% total cost for shipping and handling and the referral fee. That compares to a lot of brands now that are paying 25% to 50% on marketing alone. We believe that Amazon is cheaper and easier to attract and retain customers.

Sramana Mitra: One of the things that you said right at the beginning is, customers still have to market on Amazon. You need sponsored listings. That is marketing on top of the basics.

Ethan McAfee: Of course, yes.

Sramana Mitra: What percent are we talking in fees that goes into that kind of marketing?

Ethan McAfee: If you’re really going to use a sponsored ad strategy, most brands do it on Amazon to really drive sales. The rule of thumb is, one-third of your sales will come from sponsored ads and will cost roughly 10% of your overall revenue budget. That’s what we’re seeing from the brands in the market.

Sramana Mitra: Depends on the category also – how crowded the category is and how differentiated your product is.

Ethan McAfee: Absolutely. If you think about cellphone case, which is a crowded space, it’s going to be much higher. If it’s more of a niche product or you have a bigger brand, then it’ll probably be lower.

Sramana Mitra: It’s quite tricky because you run into the same problem of very crowded and very expensive traffic on Amazon as well.

Your claim that it’s a breeze on Amazon and it’s expensive to acquire traffic elsewhere is not entirely true because you can get buried in Amazon and make no sale at all.

Ethan McAfee: Of course. I didn’t mean to say that Amazon was easy. It’s very complicated.

This segment is part 3 in the series : Thought Leaders in E-Commerce: Ethan McAfee, CEO of Amify
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